Distribution and Productivity

Electrical contractors depend on distributors, not only for access to products, but for service and expertise. “We typically purchase from distributors, and the ones that have the most knowledgeable people make it more efficient for us,” said Frank Miller Sr., project manager, Dynalectric, Los Angeles. “For example, we need to buy a lighting fixture specified for a job. When we place an order, we will not know that it needs an attachment to hang down from the ceiling. A knowledgeable wholesaler will inform us of the missing part required for a complete assembly. If they didn’t, we’d be all set to do the installation, but be missing that item and that would hold up our installation. The knowledge the wholesalers have benefits us. They understand what we are talking about, speak our language, and that makes it more efficient for us.”

The common language is as important as the ability to control costs by using a distributor, rather then spending labor time looking for the lowest cost products.

“The role of our distributor outside salesperson is changing from traditional sales and service, to business partners, by suggesting ways to increase efficiency and save the electrical contractor money” said Dean Lemman, executive vice president, North Coast Electric, Bellevue, Wash., “Our focus is on creating solutions that drive cost out of the contractors’ business. Successful examples include vendor managed inventory, automated on-site job trailers, electronic billing, Web order entry, and design-build services.”

Demographically, the National Association of Electrical Distributors (NAED) estimates that the electrical distribution market consists of 1,500 electrical distribution companies with 4,500 branches, for a total of 6,000 locations across the country. The top five national chains (Graybar, WESCO, Rexel, CED, GE Supply) have total sales of approximately 14 billion or about 20 percent of the total market. The small shop still dominates the majority of the market.

“Our members of all sizes are concerned about providing their contractor customers with the service they need to cut costs,” said Thomas Nebar, president of NAED and publisher of TED Magazine. “We think that distributors’ role is going to become more important in the future. If you look at labor statistics and the aging population of the electricians in the work force, within the next few years, there could be a potential labor shortage. Distributors and contractors are going to have to work closer to be able to better serve the end-users and promote the electrical industry.”

Distributors, both national and local, are increasingly aware of the value of working together.

“We’re in a very commercial market,” said Bruce Kogod, CEO, Maurice Electric, a Washington, D.C., distributor. “We have a variety of ways to help electrical contractors be more productive. First off, we help them get work. We become familiar with the jobs they are bidding and then we provide them with information so we can get them the best possible price.”

More options for clients

Maurice Electric, like many other distributors, offers customers access to its inventory online.

“Customers can check stock levels themselves,” said Kogod. “It’s not done a lot, but some contractors want that option. We do it to put information in their hands—prices, inventory levels. If a contractor needs to know if he can get certain merchandise in a certain amount of time, he can check. It helps him plan.”

Maurice Electric also invested in equipment and personnel to be able to provide its clients with printed color submittal brochures that have to be presented to engineers and architects, once the job is secured and the materials defined.

“We put a lot of money and effort in making sure we can do that,” said Kogod.

Project help and special services

Maurice Electric also has a separate major projects division catering to the large projects in the D.C. area.

“We have project managers in-house who are very experienced and know how to solve problems. Lots of the other electrical distributors in our market don’t have that kind of trained staff,” said Kogod.

Maurice Electric also caters to the ongoing needs of contractors by having a 80,000-square-foot warehouse, a 24-hour emergency service, and 13 trucks to facilitate material movement. Customers can order until 5 p.m. on any business day.

“That lets them order all day,” said Kogod. “We have a late night group that loads trucks, and the trucks start delivering early the next day.”

National distributors offer a variety of services, as well.

“On the front end, we can help contractors get the project,” said Arnold Kelly, construction market director, Graybar. “We can provide quotation services, technical and design assistance, product cut sheets and value engineering. It’s part of our value-add service. If a project is coming in over budget and the contractor needs assistance in reducing the total cost, we can help them find new products and solutions that can reduce total project costs. These are the services that set us apart from most ‘do-it-yourself’ retailers.”

The service doesn’t stop there. Once a contractor lands a job, Kelly said, his team sets up a computer for the contractor on-site so personnel can make specific inquiries about source materials. They also supply the contractor with mobile ministorage containers to transport materials, manage tool cribs and wires and cable services for projects using specialty wiring cable.

“We’ve created a project management software tool to manage projects so we can deliver status reports to contractors that keep them informed on project status, billing, ship dates, etc,” said Kelly. “Managing the number of invoices alone can be a staggering process for the electrical contractor. We can take the daily invoices and consolidate them into one invoice per month for that project.”

Graybar provides special services for some projects.

“We can provide on-site trailers for large projects where it appears to be a good solution for the electrical contractor,” said Jamie Thompson, area manager, Graybar, Fresno/Modesto, Calif. “This service may be especially important for contractors with projects that involve multiple buildings or floors.”

For large projects, Graybar supplies the contractor with a three-person team, each with a different job description. The first person provides project quotation, design assistance and material quotes. The second person has to make sure submittals are done, shipped on time and that damaged materials are handled properly. The third person handles daily orders and any miscellaneous day-to-day needs.

A redefinition of the relationship

While local, regional and national distributors offer programs to attract business, there is another set of actions being implemented by some in the electrical contracting industry: a redefinition of the relationship between distributors and electrical contractors.

The rationale for this redefinition was explained in an article by Dr. Perry Daneshgari in the August 2005 edition of Electrical Contractor. In “Procurement Management in the Electrical Contracting Industry,” Daneshgari explained that contractors and distributors are using the Supply Chain Horizontal Integration (SCHI) Model to form a close relationship and identify each other’s needs.

One electrical contractor adopted the model after hearing Dr. Daneshgari speak at a conference.

“Our company has a revenue of around a $100 million. We were using as many as 10 distributors,” said Jimmy Cleveland, president of Atlanta-based Cleveland Electric Co. “We bought on price. Now we buy on price and service. That helps us get the lowest possible cost. Our previous gross margins ranged from 10 to 13 percent. With this method we’ve been able to increase that by three to four percentage points.”

How is Cleveland Electric making that happen?

“You’ve got to convince the distributor that his role is one of service in addition to selling product,” Cleveland said. “We told [10 distributors] what we were looking for in way of service and then evaluated them in terms of their inventory, number of trucks, branches in town and their software and information technology. We picked one national and one local. As we’ve moved forward in partnership, we have two people from each company in our building. Our project managers interact with them face to face.”

Across the country in Stockton, Calif., Collins Electric Co. is working the same model.

“We were always trying to drive price down and forgot about the serviceability and efficiencies of getting the materials there when they were needed,” said Brian Gini, Modesto, Calif., branch manager, Collins Electric. “If we saved five cents on a hundred dollars worth of conduit from a supplier, we weren’t looking at the greater cost of installation. If we save one hour of labor, we save $55 or 60 dollars. That’s how we started to think and that’s been our focus for last three years.”

Gini wanted his electricians to focus on what they were trained to do, such as installations, instead of moving or storing materials. He pitched this to the union, along with a five-year apprenticeship program for all electricians.

“We have electricians earning a good wage,” said Gini. “They were trained to do installation. I don’t want them handling materials, assembling materials. It’s not what they were trained to do. When we get materials in front of the installers, it adds to our productivity.”

Collins Electric began the company’s efforts as it was about to embark on construction of Kaiser Medical Center, Modesto, Calif., a template for 13 hospitals that Kaiser will build in the state over the next decade.

“The project was going to be the largest project for our company,” said Gini. “We knew we’d have large manpower size, knew we wanted to control the materials movement, from miscellaneous materials, to commodity materials to light fixtures, to switch gear, to feeder wire.

“So, we sent an RFP to a couple of distributors whom we knew had experience with on-site services, [and] eventually went with Graybar and tailored the on-site service program to suit our needs. They agreed to have one or two of their employees on-site every day managing materials. Now, it’s like Graybar’s employee is one of our employees, which is not common.”

The method demands preplanning, said Gini, because you have to know what materials you will need in specific areas ahead of time.

“The way it works is that on-site Graybar employees stock and warehouse commodities—pipe, wire, fittings, boxes—items that you’d usually will call from a supply house—at levels set by our foreman who anticipates our needs for a week or two weeks, depending on the phase of construction,” said Gini. “After checking in all the materials and freight, the Graybar employee then contacts our foreman via cell phone or radio to let him know what is arriving. On our side, our foreman lays out how he wants the material packaged for the floors. Then, it is Graybar’s responsibility to put all materials on pallets. Our apprentice then picks it up and moves it to the installation area.”

Redefining the relationship between the distributor and the electrical contractor can provide opportunities for increased productivity—always an aim of a profitable business relationship. EC

CASEY, author of "Kids Inventing! A Handbook for Young Inventors" and "Women Invent! Two Centuries of Discoveries that have Changed Our World," can be reached at scbooks@aol.com or www.susancaseybooks.com.